How Insurance Works

When you're trying to decide which health insurance policy is best for your needs, it may help you to understand the insurance industry as a whole.

While the complex technical workings of insurance companies can be confusing for those of us on the outside, insurance is a simple concept to explain.

The term 'insurance' is used to explain products offered to consumers to mitigate risk and provide financial compensation in the event of adverse, unforeseen circumstances.

If this has already thrown you, perhaps it's worth digging a little deeper.

What is risk?

Insurance premiums are often based on the level of risk you face as a policyholder. The only exception to this is health insurance, where premiums are determined by the product performance, rather than the consumer's history and risk.

For general insurance policies, the risk is determined by any factors that may adversely affect the property or person covered by the insurance policy, such as inadequate safety, security or structural integrity.

It is the responsibility of the policyholder to adequately protect their property and themselves from risk.

Depending on your provider, you may be asked to assess your own level of risk, or an official from the insurance provider will make the evaluation. These assessments are essential for an insurance provider to determine the outcome of any future claims.

In the case of private health insurance, providers cannot discriminate against or reject an individual because of their health or risk levels. Regardless of your state of health, a provider cannot turn you away but will apply pre-existing waiting periods onto your policy depending on your conditions.

How does insurance help?

While an insurance policy cannot prevent events that cause damage, injury or illness, it is the role of the provider to offer a level of financial protection to allow policyholders to recover from these incidents.

When a consumer lodges a claim, the insurer will then determine whether the event in question is covered by the policy and how much compensation is required.

These claims will help the policyholder pay repair expenses, replacement costs or medical bills related to the incident.

What types of insurance are there?

There are many type of general insurance products available in the Australian market. These include private health insurance, travel cover, pet insurance, workers' compensation and many, many others.

Products and policies vary between providers, so it is important for consumers to understand the differences before they purchase cover.

How do brokers fit in?

Insurance brokers are professional advisers who work on behalf of the consumer to help identify the appropriate level of cover and the most suitable provider.

An insurance broker who specialises in one kind of insurance can offer their clients expert advice and guidance within their chosen field.

If you're thinking about purchasing Australian health insurance, consider contacting HICA first.

HICA is a health insurance broker who can provide you with a personal, obligation-free private health insurance comparison to help you chose the cover that best suits your needs.

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Berry Treffers

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Michael van Schaik

+61 (0) 418 844 105